Wednesday, 24 September 2008

Is the Sub Prime Problem Being Looked At The Wrong Way

From what I've heard, read and seen the credit crunch began when banks in America lent money to people who weren't good credit risks to buy houses to live in. Those mortgages were bundled together with slightly better ones, sliced, diced, squeezed, spread and reformed into securities that were then sold to clever grown-ups in big banks around the world for folding money. Despite, it now turns out, nobody having the slightest idea how much the securities were actually worth except everyone else in the class has got them. Now that banks have suddenly realised they all bought magic beans, due diligence has returned with a vengeance and they refuse to lend money to anyone because they've got sub-prime securities and they won't get their money back. So the entire capitalist economic system has gummed up like something very complicated with gum in it. And the only thing that can ungum things is a massive amount of public money injected into the system by means of the US Treasury or Bank of England buying the sub-prime securities and swapping them for fresh, real money. Unfortunately, the only way the Treasury can get hold of the money (because tax won't be increased, alegedly) is to borrow it from those banks whose refusal to lend it to each other has caused the credit crunch.
My head is spinning so I will write my key point now. The $700 billion will help the banks and bankers get back to making massive amounts of money for themselves. The people defaulting on their mortgages will see themselves made homeless. If all that money can be magicked up to help bankers, wouldn't it be fairer and more sensible to spend it at the other end of the economy to have necessary work done, to create better-paid jobs so that the present sub-prime mortgage defaulters can continue to pay their mortgages. They will stay in their homes, the sub-prime securities will gain some value and can then be bought and sold again and the banks will be able to write off their now somewhat reduced losses against greed and stupidity. Just a thought.


Thud said...

I havn't a friggin clue what is happening...but my house is still here...I have money in the bank(I just checked!) and I'm going to work in the morning...I'm confused.

haddock said...

One day someone* will research the first use of the word "product" as applied to banking..... as in "the bank will introduce new products".
We will then be able to pinpoint the moment distance between the poo and the fan started to diminish.

* not me, I'd rather go fishing.

James Higham said...

If all that money can be magicked up to help bankers, wouldn't it be fairer and more sensible to spend it at the other end of the economy to have necessary work done .....

Got it in one.

Welshcakes Limoncello said...

Well said.

Tony Sharp said...

This is a long overdue and painful correction. Gordon Brown and Alan Greenspan could have addressed this problem years ago, but instead they fuelled a credit boom. Yet another reason why rust is now visible on the former 'Iron' Chancellor.

Deb Acle said...

G - you said precisely what I was going to comment as I read your explanation about this crunchie business.

There seems always to be this utterly intractible refusal amongst the haves to ensure that the have-nots sustainably become haves like them.

The haves do all they can to screw the have-nots of what little they do have and then squeal like crazy when their supply of free money begins to dry up.

'Educatin' the have-nots by leaving them scores of £thousands in debt in return for devalued degrees is an example of this con.

Arrgh! Mr Broon would not like to be left in a room alone with me anytime!!